The biggest lenders, the Halifax, Abbey National and Nationwide, predict an increase of 7 to 8 per cent in house prices in 1997, about the same as the past 12 months.
Lenders are eager to encourage the recovery in their business but are nervous about the echoes of the late-1980s house-price boom. Their cautious forecasts contrast with buoyant surveys of home buyers, and with some experts who foresee even bigger price gains next year than this.
The Government is walking the same tightrope as the banks and building societies. The Deputy Prime Minister, Michael Heseltine, talked up the feelgood effect on voters of the housing boom in a Boxing Day radio interview. However, the Chancellor and the Prime Minister have promised that there will be no return to the days of boom and bust.
"Views on the state of the housing market do seem to be polarising between those who predict a boom and those who predict the market will settle down on a more modest growth path. My view rests in the latter camp," said Andrew Clark, chief economist for the Bradford & Bingley building society.
It is a view shared by the Nationwide, which yesterday predicted house prices would increase by 7 per cent in 1997, lower than the rise of more than 8 per cent in 1996. It said the recovery was "soundly based".
"We expect more existing home owners to enter the market next year and this is likely to lead to higher sales as supply bottlenecks ease," said Philip Williamson, commercial director. The society reckons supply shortages have distorted the recovery so far.
The Nationwide said increases in double digits were confined to London and the South-east. Across the country, average house prices had dipped fractionally in December to a level 8.5 per cent higher than a year earlier.
The Halifax publishes its latest monthly figure next week, but has forecast price rises of 7-8 per cent in both 1997 and 1998, a shade higher than the 7-per-cent increase that it measured in 1996. It argues that the market will be steadier than it has been for the past 25 years.
The Nationwide and Halifax, which both underestimated the extent of house price increases in 1996, believe that the number of sales will increase sharply next year.
In spite of their measured outlook, home owners are increasingly optimistic about the housing market. One in two people now believes the value of their home will increase during the next 12 months compared with only one in three at the start of the year, according to a survey published yesterday.
Almost two-thirds of those surveyed in London and the South-east expected their homes to rise in value in the coming year, according to the survey by Barclays Mortgages. There was least optimism in the North-west, Yorkshire and Humberside, where only two out of five expected a price rise.
Barclays Mortgages marketing director Jim Chadwick said: "It's reassuring to see predictions for housing market recovery coming from those with the power to make it happen - actual home-buyers."
The investment bank UBS has predicted an increase of 10 per cent.
David Miles, professor of economics at Imperial College, said: "Once prices do start to increase it becomes a self-fulfilling prophecy."